Borrow The Treasury Of Quotes

Don Vicente, a monk of the Convent of Pobla in Aragon, murdered several collectors in order to get their best books;

I know no greater bore than the man who insists on lending you a book which you do not intend to read.

They looted your public and corporate treasuries, and turned your industries over to nincompoops,” he said. “Then they had your Government borrow so heavily from us that we had no choice but to send over an Army of Occupation in business suits. Never before has the Ruling Class of a country found a way to stick other countries with all the responsibilities their wealth might imply, and still remain rich beyond the dreams of avarice! No wonder they thought the comatose Ronald Reagan was a great President!

The fact that so many young men and women enter the teaching profession shows that there are still some people willing to scrape along on comparatively little money for the pleasure of following an occupation in which they delight.

... nature has arranged that when you overcome a given inertia the resulting momentum is proportionate. If I were to begin borrowing money I would end by devising means of persuading the Secretary of the Treasury to lend me the gold reserve.

The only way that the Treasury can redeem its debt to the Social Security Administration is to borrow the money from the public, run a surplus in its other activities or have the Federal Reserve print the money—the same alternatives that would be open to it to pay Social Security benefits if there were no trust fund.

This unique ability of the U.S. Government to borrow from foreign central banks rather than from its own citizens is one of the economic miracles of modern times. Without it the war-induced American prosperity of the 1960s and early 1970s would have ended quickly, as was threatened in 1973 when foreign central banks decided to cut their currencies loose from the dollar, letting them float upward rather than accepting a further flood of U.S. Treasury IOUs.

What was critical to my father was that we not "go into government". His father and mother had both worked in the Treasury Department; and to him, "going into government" meant getting "hooked" on the salary and job security, and spending the rest of one's life in predictable, routinized labor that stunted the mind and sapped the spirit. My father would tell us of accountant friends who had passed their C.P.A. exam, then gone to work for the generous starting salaries offered by the I.R.S. While he was struggling in his mid-twenties, they were bragging about the cash they were taking home. Now, he said, he rarely saw them. Now, they had a defeated look; now, they were taking orders from some bureaucrat, and would be taking orders for the rest of their lives. He admired the disposition to roll the dice and risk everything that his Jewish friends and clients, Benny Ouresman, the Chevrolet dealer, and Harry Viner and his son Melvin, who had made a fortune with Sunshine Laundry, had exhibited. "They didn't have a damn dime when they started," Pop would tell us, emphatically. "They went to friends, borrowed money, started a business, went broke, went back to their friends, borrowed again, went broke again. Finally, they made it. They built something of their own. Now they work for themselves, and everybody else works for them. Be your own man!" That was the attitude we should adopt.

The difference gave China a $420 billion trade surplus (the US carried the opposite, a $420 billion trade deficit with China). Americans paid for those goods with US dollars, and those payments were credited to China’s bank account at the Federal Reserve. Like any other holder of US dollars, China has the option to sit on those dollars or use them to buy something else. Uncle Sam doesn’t pay interest on the dollars China keeps in its checking account at the Fed, so China usually prefers to move them into what is effectively a savings account at the Fed. It does this by purchasing US Treasuries. “Borrowing from China” involves nothing more than an accounting adjustment, whereby the Federal Reserve subtracts numbers from China’s reserve account (checking) and adds numbers to its securities account (savings). It’s still just sitting on its US dollars, but now China is holding yellow dollars instead of green dollars. To pay back China, the Fed simply reverses the accounting entries, marking down the number in its securities account and marking up the number in its reserve account. It’s all accomplished using nothing more than a keyboard at the New York Federal Reserve Bank.

The American share of the crisis began with grossly improper mortgages provided to wholly unqualified borrowers, all directly caused and encouraged by government distortion of and interference in the market. The government’s market deformation and market intervention was in turn the result of two factors: political favouritism and Leftist ideology, on the one hand; and upon the other, corruption: the blatant cooption of such Friends of Angelo as Mr Dodd and of such bien-pensant Lefties as Mr Frank. The stability and efficiency of any market is directly proportional to the amount and trustworthiness of market information. The Yank Congress, for blatantly partisan and ideological reasons, gave out false information to the market, pushing lenders into making bad loans and giving out, with the appropriate winks and nudges, that Fannie (will Americans ever realise how that sounds) and Freddie, imperfectly quangoised, were ‘really just as good as the Treasury’ and were in any case ‘too big to [be let] fail’: which, as it happens, was untrue. Similarly, this moronic mantra of ‘too big to fail’ was chanted desperately and loudly to drown out the warning sounds of various financial institutions on the brink and of the automobile industry. Incomprehensible sums of public money were thrown at these corporations so that they could avoid bankruptcy, and have succeeded only in privatising profit whilst socialising risk.

Hamilton argued that the security of liberty and property were inseparable and that governments should honor their debts because contracts formed the basis of public and private morality: “States, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.”The proper handling of government debt would permit America to borrow at affordable interest rates and would also act as a tonic to the economy. Used as loan collateral, government bonds could function as money—and it was the scarcity of money, Hamilton observed, that had crippled the economy and resulted in severe deflation in the value of land. America was a young country rich in opportunity. It lacked only liquid capital, and government debt could supply that gaping deficiency. The secret of managing government debt was to fund it properly by setting aside revenues at regular intervals to service interest and pay off principal. Hamilton refuted charges that his funding scheme would feed speculation. Quite the contrary: if investors knew for sure that government bonds would be paid off, the prices would not fluctuate wildly, depriving speculators of opportunities to exploit. What mattered was that people trusted the government to make good on repayment: “In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it and this is affected by appearances as well as realities.” Hamilton intuited that public relations and confidence building were to be the special burdens of every future treasury secretary.

And spend they did. Money circulated faster and spread wider through its communities of use than at any other time in economic history.8 Workers labored fewer days and at higher wages than before or since; people ate four meals a day; women were taller in Europe than at any time until the 1970s; and the highest percentage on record of business profits went to preventative maintenance on equipment. It was a period of tremendous growth and wealth. Meanwhile, with no way of storing or growing value with this form of money over the long term, people made massive investments in architecture, particularly cathedrals, which they knew would attract pilgrims and tourists for years to come. This was their way of investing in the future, and the pre-Renaissance era of affluence became known as the Age of Cathedrals. The beauty of a flow-based economy is that it favors those who actively create value. The problem is that it disfavors those who are used to reaping passive rewards. Aristocratic landowning families had stayed rich for centuries simply by being rich in the first place. Peasants all worked the land in return for enough of their own harvest on which to subsist. Feudal lords did not participate in the peer-to-peer economy facilitated by local currencies, and by 1100 or so, most or the aristocracy’s wealth and power was receding. They were threatened by the rise of the merchant middle class and the growing bourgeois population, and had little way of participating in all the sideways trade. The wealthy needed a way to make money simply by having money. So, one by one, each of the early monarchies of Europe outlawed the kingdom’s local currencies and replaced them with a single central currency. Instead of growing their money in the fields, people would have to borrow money from the king’s treasury—at interest. If they wanted a medium through which to transact at the local marketplace, it meant becoming indebted to the aristocracy.

From 1942 until 1947, the Federal Reserve—at the behest of the Treasury Department—actively managed the government’s borrowing costs. Even as spending to fight World War II drove the federal deficit to more than 25 percent of GDP in 1943, interest rates trended lower. That’s because the Fed pegged the T-bill rate at 0.375 percent and held the rate on twenty-five-year bonds at 2.5 percent. As MMT economist L. Randall Wray put it, “the government can ‘borrow’ (issue bonds to the public) at any interest rate the central bank chooses to enforce. It is relatively easy for the central bank to peg the interest rate on short-term government debt instruments by standing ready to purchase it at a fixed price in unlimited quantities. This is precisely what the Fed did in the United States until 1951—providing banks with an interest-earning alternative to excess reserves, but at a very low rate of interest.

Laugh, and the world laughs with you; Weep, and you weep alone; For the sad old earth must borrow its mirth, But has trouble enough of its own. Sing, and the hills will answer; Sigh, it is lost on the air; The echoes bound to a joyful sound, But shrink from voicing care. Rejoice, and men will seek you; Grieve, and they turn and go; They want full measure of all your pleasure, But they do not need your woe. Be glad, and your friends are many; Be sad, and you lose them all— There are none to decline your nectared wine, But alone you must drink life’s gall. Feast, and your halls are crowded; Fast, and the world goes by. Succeed and give, and it helps you live, But no man can help you die. There is room in the halls of pleasure For a large and lordly train, But one by one we must all file on Through the narrow aisles of pain.

The party for those addicted to markets has been the “make it rain” free-money printing game run since 1971. They may call it “Quantitavive Easing”, (QE) or “monetary policy” or “Asset purchases by the Fed”, or any number of terms which cause 99% of humans to stop listening. I urge everyone to demand better from governments, professionals and public servants. To demand real “service” from those who claim to be in this role. Right now we are letting those addicted to money, play with “self” accountability, which is creating addicts and poverty at a faster rate than our western economies can create prosperity. “Asset purchases” means the Fed printing money, to give this money to banks in exchange for some of the banks bad assets that need to be purged. How wealthy would your family be if each losing investment could simply be taken off your hands…using borrowed money that the taxpayer must then repay? How poor would your neighbors be if they did not have this money pipeline working for them? The newly printed money for asset purchases, is backed by US Treasury IOU’s, or similar notes and borrowings, for which the public must now repay through income taxes…forever. Banks thus get billions in freshly created cash, while the US public gets the bad assets, or gets stuck with the bill to pay back the money created to purchase the bad assets. I could probably refine that description a bit, but for now I am going to let it lay here. Any corrections are welcomed with gratitude. Dousing the flames of the 2008 mortgage bubble disaster, using government money issued in this manner, was said to be needed to prevent complete financial system meltdown. A better choice would have been to let those with a gambling addiction, suffer the consequences of their addiction, like we demand of every addict in Downtown LA. But the Fed is the perfect tool for dumping bank gambling losses and bad assets upon the taxpayer, and to make taxpayers pay to give the banks a clean-money start each time. The only thing left to do for the recipients of some of those newly printed billions, is to “launder it”, to get

The securities lending business boils down to one concept: exchanging a security that someone needs for a different security or cash. The business is driven by the need of the dealer community to cover short positions, be it in stocks, Treasurys, agencies, corporate bonds, ADRs, or even ETFs. When a dealer is looking to cover a short position, they first check what are colloquially known as the “sec lenders.” The securities lending group will pull the security out of the end-user portfolio and lend it into the Repo market. When a securities lending group loans a security, they either receive cash or bonds in return. If they receive cash, they reinvest the cash. If they receive a bond, they earn a fee on the spread between where they loan the bond and borrow the other. In the case of cash, they need to invest it. They need an investment that generates a sufficient return to make the business viable, yet, at the same time, without taking too much risk. The safest and easiest way to invest is in overnight Treasury repo. The problem is that there’s very little profit lending a Treasury and reinvesting in a Treasury. In order to enhance returns, the securities lending groups take some risk. It’s not necessarily a lot of risk, but increasing returns involves increasing risk. It can be either interest rate risk, credit risk, or liquidity risk. Technically a combination of all three is possible, too, but that’s pretty dangerous. The yield curve is upward sloping most of the time, so investing for a longer period of time generally generates a higher yield. Let’s say the overnight rate is 2.00%, the one-month rate is 2.05%, and the three-month rate is at 2.15%. Instead of reinvesting cash overnight, there’s an extra 15 basis points for investing for three months. Since the end-investor clients usually hold their bonds to maturity, there’s only a small chance they will sell a bond during that three-month period. On top of that, the securities lending groups run multi-billion dollar portfolios, so they can ladder their investments.

The real significant shortages were caused by one of the following: 1.       Cheapest-To-Deliver (CTD) – A specific security must be delivered to the exchange (CME) to fulfill a futures delivery requirement. If the correct security is not delivered, it’s a very expensive fine. This is a can’t-fail scenario. 2.       Gone From The Market – This was the case with the 3.625% 5/15/2013. There was no supply available and deep shorts. 3.       Settlement Distortion – During the September 11, 2001, period, the entire settlement system broke down. BONY couldn’t clear securities for days. 4.       Flight-To-Quality – End-investors buy-up all of the Treasurys, pack them away in their portfolios, and don’t loan them into the Repo market. These are solid reasons for securities shortages. However, when you take these out, the rest can generally be attributed to the Repo market, assisted by the Repo market, or helped along by the Repo market. A “Repo market squeeze” is a short squeeze that’s orchestrated by someone in the Repo market. The squeezer could be a Primary Dealer, a bank, a broker-dealer, or even a West Coast money manager. The concept is simple: Buy or borrow as much of a Treasury issue as possible and hold that supply out of the market. Don’t loan it to anyone. Then see how low Repo rates go. When the security begins to trade rich in the cash market or term Repo rates decline, sell the position. Or sell as much as possible.

Rather than accumulating the position in the secondary market, borrowing the securities from clients, or buying in the term Repo market, why not just buy the securities right from the start? Why accumulate securities in the secondary market and drive-up prices when you can just buy them directly from the Treasury? Buy the entire new Treasury issue and eliminate the middle-men! Not a bad idea!

When the Fed makes a loan, taking securities or bank loans as collateral, the recipient of the loan deposits the funds in a commercial bank. The bank in turn adds the funds to its reserve account at the Fed. When banks hold substantial reserves, they have little need to borrow from other banks, and so the interest rate that banks charge each other for short-term loans—the federal funds rate—tends to fall. But the FOMC targets that same short-term interest rate when making monetary policy. Without offsetting action, our emergency lending—by increasing the reserves that banks held at the Fed—would tend to push down the federal funds rate and other short-term interest rates. Since April, we had set our target for the federal funds rate at 2 percent—the right level, we thought, to balance our goals of supporting employment and keeping inflation under control. We needed to continue our emergency lending and at the same time prevent the federal funds rate from falling below 2 percent. Thus far, we had successfully resolved the potential inconsistency by selling a dollar’s worth of Treasury securities from our portfolio for each dollar of our emergency lending. The sales of Treasuries drained reserves from the banking system, offsetting the increase in reserves created by our lending. This procedure, known as sterilization, allowed us to make loans as needed while keeping short-term interest rates where we wanted them.

Repo is a true market. Repo rates are determined by the interaction of supply and demand. Supply is the number of securities outstanding and the amount of those securities available in the marketplace. Demand is the amount of cash in the market. It’s also the number of shorts in the market – the traders who have sold Treasury securities short and must borrow them. Repo stands for “Repurchase Agreement,” which means that if I loan a security to you, you agree to give it back. The opposite of that is officially called a Reverse-Repurchase agreement. It’s the opposite of a Repo. If I borrow a security from you, I agree to return it back to you. In basic terms, Repo is a collateralized loan. One party borrows cash and holds a security as collateral.

David Heuwetter was the head trader at Drysdale Government Securities and had a great trading idea. It was really more of a scheme to take advantage of the difference in the market convention between outright Treasury purchases and Repo trades. Still at this time, when someone bought and sold a U.S. Treasury outright, the securities settled with the coupon accrued interest added to the purchase price. That is, when you bought a U.S. Treasury, you had to pay for the amount of interest which had already accrued on the security since the last coupon payment date. When interest rates were low, the accrued interest was small, even negligible. However, in the early 1980s, interest rates shot up above 10%, which meant there was a lot of interest accruing on bonds each day.  Heuwetter realized he could short-sell U.S. Treasurys outright and deliver the securities to the buyer and receive the price plus the accrued interest. Then, when he borrowed the securities in the Repo market, he only had to pay the purchase price. He was getting the full use of the accrued interest on the bonds at no cost.

In theory, the liquidity premium is reflected in the Repo rate. If the current 2 Year Note has a yield of 1.00% and the off-the-run (older) issues of the same maturity have a yield of 1.02%, it means the current issue has a two basis point premium. That’s a 0.02% lower yield than other equivalent maturity Treasurys. Of course, now you’re asking, “Why not just short sell the current 2 Year Note, buy an older issue with the same maturity, and pocket the liquidity premium when the next current issue is announced?” Yes, that’s possible, but that liquidity premium is also reflected in the Repo rate. The Repo rate to borrow the current issue will be lower than the Repo rate to loan the other, older issues. Basically, the difference between the Repo rates for the current 2 Year Note and the off-the-run issues will generally equal the liquidity premium. That’s part of the math in the Treasury market. It usually works that way, but not always.

SOFR is a combination of three Repo rates: deliverable GC, GCF, and Tri-Party. The deliverable GC component is an average of all inter-dealer U.S. Treasury General Collateral trades that settle in FICC (Fixed Income Clearing Corp.). GCF is short for General Collateral Finance, and it’s basically inter-dealer Tri-Party trades that settle within FICC. The last component is the Tri-Party rate, and this rate is very important for understanding SOFR. Tri-Party is the average rate for Tri-Party trades that settle at the Bank of New York (BONY). Whereas GC and GCF are dealer-to-dealer rates, Tri-Party is a dealer-to-customer rate. What does that mean? It’s where the Street borrows money from customers, not from each other. Dealer-to-customer means the rate is on the offered side of the market, or lower if the dealer marks up the rate, which we commonly do. The Tri-Party rate is always lower than the inter-dealer rate. And it means that SOFR should always trade below Repo GC.

What waits me on the shelves? I cannot guess, But feel the sure foreboding; there will cry A voice of human laughter and distress, A word that no one needs as much as I.

What a clever trap your Ruling Class set for us," he went on. "First the atomic bomb. Now this." "Trap?" I echoed wonderingly. They looted your public and corporate treasuries, and turned your industries over to nincompoops,” he said. “Then they had your Government borrow so heavily from us that we had no choice but to send over an Army of Occupation in business suits. Never before has the Ruling Class of a country found a way to stick other countries with all the responsibilities their wealth might imply, and still remain rich beyond the dreams of avarice! No wonder they thought the comatose Ronald Reagan was a great President!

Next, Cohn repeated what everyone was saying: Interest rates were going to go up over the foreseeable future. I agree, Trump said. “We should just go borrow a lot of money right now, hold it, and then sell it and make money.” Cohn was astounded at Trump’s lack of basic understanding. He tried to explain. If you as the federal government borrow money through issuing bonds, you are increasing the U.S. deficit. What do you mean? Trump asked. Just run the presses—print money. You don’t get to do it that way, Cohn said. We have huge deficits and they matter. The government doesn’t keep a balance sheet like that. “If you want to do something that would be smart—and you actually do control this—I would add a 50-year and a 100-year bond from the U.S. Treasury.

The money he took, by and large, was not stolen directly from Malaysia’s treasury or through padded government contracts. Instead, it was cash that 1MDB borrowed on international financial markets with the help of Goldman Sachs.